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Turnaround Letter
Out-of-Favor Stocks with Real Value

GCI Completes Merger. Retain Buy Rating with New $9 Post-Merger Target Price.

Turnaround Letter Buy-rated Gannett (GCI) completed its merger with New Media Investment Group yesterday. Gannett shareholders receive $6.25/share in cash and .5427 shares of New Media Investment Group (which closed at $6.28 yesterday). This translates to about $9.65/share in value to former Gannett shareholders. The combined company will retain the Gannett name and trade under the GCI ticker symbol.

We are retaining our Buy rating on the new Gannett shares, with a price target of $9. The combined company should generate considerable cost-savings to boost EBITDA and help provide the cash flow needed to reduce its now-sizeable (3.5x leverage) debt. Our price target assumes that the company generates less than half of the $275-300 million in synergies expected by management, and trades at a modest 4.5x EV/EBITDA multiple in 2021.

The leadership team looks capable and is overseen by private equity firm Fortress Investment Group, who retains their shares along with incentives to boost the company’s value. Fortress is providing the (expensive at 11.5% interest rate) loans that refinance the new company’s debts.

Management appears committed to the new $0.76/share dividend, which appears reasonably sustainable based on our current projections. This produces an appealing 11% yield.

We rate new Gannett shares a Buy with a $9 price target.

Disclosure Note: One or more employees of the Publisher own shares of all Turnaround Letter recommended stocks including GCI shares.